The company owns prime land in the heart of Chennai where its mills are located and decided to exit its primary business of warehousing and get into real estate development. In 2009 it demerged into three companies - Binny Ltd, Binny Mills Ltd and SV Global Mill Ltd after emerging from BIFR each focusing on separate businesses.

The land is located 3 kms away from Sowcarpet ( https://en.wikipedia.org/wiki/Sowcarpet ) - which is in the market area of north chennai dominated by the trader community. It is congested, dense and looks like this.

Binny Ltd entered into a Joint Development Agreement (JDA) on 26.6.2015 on revenue sharing model with M/s.SPR Construction Pvt. Ltd., Chennai on a 63.89 acre parcel of land on which it previously had 120 godowns (which are now demolished and written off from the books )

This parcel of land has been valued at 1662 Crs by CBRE and is located at a 3 km distance from South India’s largest Wholesale Market - Sowcarpet. This project is expected to ease the infrastructure woes and once completed it will be Chennais largest township

On 24.10.2016 - it got environmental clearance from the environment authorities which for a township is a big deal.

The Project is expected to start by end of this year and shall be developed over a period of 7-9 years in 2 phases, wherein first phase is expected to be delivered in 36-42 months from the start of the construction. The first phase is 23.89 acres.

SPR has given an upfront JDA security deposit of Rs.250 Cr to the land owner from their own sources & SPR has secured financing of 100 crs from Piramal Capital.

As per the Piramal Capital document the developer has a strong interest from buyers before the project has started ( it has presold the marriage hall & ~1.25 lacs of commercial + residential space) and SPR has a good track record of delivering projects in time. Both SPR and Piramal capital can exit the project at a 24% IRR as a part of the deal.

The revenue sharing proportion is 40% ( Binny ) & 60% ( SPR )

The expected size of development under current CMDA regulations would be based on lucrative 2.5 Basic FSI + 1 premium FSI (subject to approvals). When the project is located in a densely populated area the FSI is generally higher.

a rough calculation is

Total Plot area = 63.89 acre Basic FSI = 2.5Total Built up area = 63.89 * 2.5 = 159.725 acres = 69,57,621 SqftAverage Realization per sqft ( which is generally 2 or 3 times the cost of the land ) should be Rs 5971 per sqft i.e cost of land ( 1662 crs / 63.89 acres) * 2 ( minimum ) = Rs 11,942 per sqft

The total revenue should be - The total builtup 69,57,621 sqft X Rs 11942 per sqft = 8,308 crores. This article in TOI pegs the topline at 10,000 crores but i am taking the more realistic number.

Binny's share (40%) = 3323 crs

The company is available at a market cap of ~310 cr offering more than a decent margin of safety.

In addition to this, the company is also developing other parcels of land ( the details of which i couldn't figure out).

Attached is a chart of the total quantity and delivered quantity for the last year ( source BSE ). The average delivered quantity is nice robust 87.49%. Another thing is the consistent increase in the number of shares delivered over time. From Sept 2016 ( around the time when the project got the environmental clearance ) to March 2017 there has been a spurt in the shares delivered along with a spurt in the price as well. This augurs well in my opinion.

General slowdown in real estate across india ( thats the perception - i dont know to what extent that it true - with Piramal enterprises on a funding spree i think some part of it is media created hype)

The real estate bill which is not land owner or developer friendly.

There used to be a worker union ( now defunct i guess with the closure of the main business) - i dont know know but they could raise issues

a large quantity of Cumulative Preference shares - which explains why dividends have not been paid to equity shareholders thus far

Demonetisation has to some extent impacted real estate demand. To what extent is anyones guess.

Disclosure - forms a significant part of my portfolio >25% & looking to add more

Hitesh Kawad, managing director, SPR and RG Constructions of Devi Parasakthi Nagar, Porur and Sanjay Bhandari, chartered accountant of S H Bhandari and company were arrested and produced before the principal special judge for CBI cases, Chennai and they have been remanded in judicial custody on Sunday.

Hi thanks for pointing that out. I dont think it constitutes a key risk impacting the business of Binny Ltd. The managers at Piramal Capital would have done their due diligence while advancing a loan to SPR and if they are satisfied that's good for me!

Thanks @bheeshma for initiating the thread. You have already covered the positives and value gap. However, i would like to point out the risks areas 1. SPR's limited execution track record - As SPR started its realty journey in 2009 only and has successfully delivered just 1.8 lacs sqft project. Further, they claimed that they are on the verge of delivering the another project "Chlorophyl" of 15 lacs sqft. We dont know the present status of "Chlorophyl".2. Bribery charge on the SPR's promoters - It may impact the prospective buyers sentiment.3. Brickwork rating on SPR's NCD is B+ which clearly shows "High risk of default" as per Brickworks report.4. High cost of funding indicates the higher risk in project execution - Piramal's funding at Min 24% IRR with 10 % sharing on residual cashflows.5. RERA - As RERA will be in place from 1st April, there will be pressure on developers to clear the inventory asap which may lead to increased supply of finished inventory in near term. This may negatively impact the new launches.6. Negative Outlook on IT & ITes sector due to automation and Trumped America.

But this project is located in the heart of the city and can surprise us positively. so need to track the booking details closely, whenever launched. In addition, we can get the idea from local property dealers about the expected demand for that project.

They are a cause of concern.But, the promoter holding is strong at about 75%. The promoter group consists of at least 2 different families. I feel that any future related party transactions may face stiff resistance from within promoter group given that they belong to different families. Nandagopal family is the majority shareholder and S. Natarajan family holds about 20%. S. Natarajan is also a Director of Shriram group companies.

Binny Ltds land near Sowcarpet is a goldmine. It is literally in the heart of Chennai bounded by the chennai railway station and the port. I am 100% confident that it will sellout quickly. Have a look at the location.

The interests of Binny are protected by the JDA with SPR. If the Piramal document is anything to go by - SPR has a strong execution track record.

As far as the brickworks rating goes, many top notch developers would get the same rating. 20% + is the cost of funding in real estate projects in general industrywide. However, once should keep track of execution progress.

Bribery allegations in SPR - while a cause for concern - are no longer in place so i am going to park that aside for the time being and focus on Binny ltds JV with SPR.

Very nice coverage, Bheesma .Just wanted to understand your investment thesis.Taking the case of Binny Textile , i think it is going to take atleast two to three years before company starts to make meaningful profits from sales of developed residential or commercial projects . What convinced you to invest and park sizeable portion this early stage and why not invest say one year down the line ? How you calculate the oppurtunity cost ?

So , i just want to understand your thinking and way you choose your oppurtunities .

How do you conclude that profits from sale will take "at least two to three years"? Take a look at the recent results announcement. The sept and dec quarter notes say that they have already received more than 10 Crs from sale of the development and will be recognised as income upon registration of the undivided share to the buyers.

Thanks for excellent write up.I am resident of chennai.There is no doubt the land parcel is in the heart of chennai but the area is considered North chennai.Here people prefer to buy property in South Chennai and also West.The cost per square feet at Rs. 11,492/-mentioned by you is too high.My estimation is at the most RS.4500.Further you have not taken into account the construction cost.Also real estate dealings lacks transparency.

Taken from Annual report 2016 "The Project is expected to start by end of this year and shall be developed over a period of 7-9 years in a phased manner, wherein first phase is expected to be delivered in 36-42 months from the start of the construction."

What will be percentage proportion of advances received as against the project development and promotional costs and unutilized land costs?

When compared to projects cost and value of land under development " 10 crs" is small amount .

@vyasln14 - This document on 99 acres lists the residential property rate in Perumbur as Rs 5792 per sqft. The price per sqft of commercial property is going to be obviously higher. I will need to find what the going rate for shops and offices is in that belt. My guess is that shops will be at Rs 14000 per sqft feet and offices will be at Rs 8000 to 10000 per sqft.

From the area statement filed with the environment clearance authorities the proportion of commercial to residential is 60%:40% . ~ 90% of the commercial is shops/retail/restaurants etc while about 10% is offices

The blended rate per sqft is probably (5792 * 40%) + ( 14000 * 55%) * ( 10000*5%)= Rs 10516 per sqft assuming no inflation. I think between 10,000 to 11000 per sqft they can easily do. only time will tell!

I am from this area and I can assure you that commercial or otherwise, it is impossible to sell at 10k psf in this area at this time. North Chennai is not the first choice for even local residents aspiring to move up the ladder.

I'm from Chennai and no way the market price would be Rs 11,942/sqft or Rs Rs 10,516/sqft.That place is congested, high noise and particle pollution, no proper parking space, etc. Only small traders and old timer will set up shops/offices at that locality. Many have shifted office to other parts of Chennai. At best it would Rs 7,500/sqft. Ideally around Rs 6,000/sqft would be the right price.

I am a chennai resident and can vouch that people don't really want to buy property in North Chennai. It is one of most congested areas in the city where people mainly go for buying goods and other commodities for cheap rates. The crime rate in this area is also supposedly higher (I don't have actual data for this to confirm) as compared to other parts of Chennai. If you look at big property developers like Sobha, Akshaya, Hiranandani etc everybody is building apartments in South Chennai.